Tund  Tacts 


^ai  ^  BULLETIN  OF  COMPENSATION  NEWS 

^^HnD  INFORMATION     ::     PUBLISHED  BY 

^  THE  STATE  COMPENSATION[INSURANCE 

^""UND  OF  THE  STATE  OF  CALIFORNIA 


APRIL,  1920 


Though  I  may  not  be  able  to  inform  men  more  than  they  know,  yet 
I  may  give  them  occasion  to  consider. 

Sir  W.  Temple. 


UNIVERSITY  OF  CALIFOR.NJA. 
\S)%  ANGELES 

SEP  26  1952 

LIBRARY 
GOVT.  PUBS.  ROOM 


FOREWORD 


This  Bulletin  is  sent  to  California  employers  in 
the  belief  that  those  who  are  Fund  policyholders 
will  profit  by  a  better  understanding  of  the  working 
of  the  cooperative  institution  to  which  they  have 
entrusted  their  compensation  risk,  and  in  order  that 
those  who  are  not  policyholders  many  have  a  better 
opportunity  of  judging  state  insurance  under  the 
California  plan.  It  can  hardly  be  expected  that 
competitors  of  the  Fund  will  present  a  true  picture 
of  the  situation,  and  whether  or  not  advantage  is 
taken  of  the  opportunity  afforded  for  material  say- 
ing in  insurance  cost,  it  is  hoped  that  no  recipient 
will  fail  to  become  acquainted  with  FUND 
FACTS. 


State  Compensation  Insurance  Fund 

OF  THE  State  of  California 

Executive  Offices  : 
Underwood  Building,  525  Market  Street,  San  Francisco 

Branches: 

California  Building,  Second  and  Broadway,  I,os  Angelci 

Forum  Building,  Sacramento 

Rowell  Building,  Fresno 

First  Savings  Bank  Building,  Oakland 

Spreckels  Theatre  Building,  San  Diego 


Mc:  53^5  4,060. 


Fund  Facts 

A  Bulletin  of  Compensation  News  and  Information 

Edited  by  C.  W.   Fellows,   Manager 
STATE  COMPENSATION   INSURANCE  FUND 


RATING  COMPENSATION  RISKS 

MISINFORMATION  regarding  the  origin  of  California 
compensation  rates  seems  to  be  the  rule  rather  than  the 
exception.  Since  every  employer  is  vitally  interested  in 
the  subject,  let  us  lift  the  veil  of  mystery  which  has  seemed  to  sur- 
round this  rate-making  process. 

Heretofore  the  only  national  center  for  rate  making  was  the 
National  Workmen's  Compensation  Service  Bureau,  in  New  York. 
As  that  bureau  was  a  purely  stock  insurance  organization,  and 
represented  solely  the  stock  company  viewpoint  in  compensation 
insurance  rating  and  practice,  it  could  hardly  be  hoped  that  the 
interests  of  other  insurance  carriers,  or  of  employers  themselves, 
could  be  properly  safeguarded  in  its  rating  procedure.  The  first 
outgrowth  of  dissatisfaction  was  the  formation  of  a  more  repre- 
sentative body  known  as  the  Standing  Committee  on  Workmen's 
Compensation  and  an  advisory  committee  known  as  the  National 
Reference  Committee.  The  National  Council  on  Workmen's 
Compensation  Insurance  was  later  organized,  but  until  the  fall  of 
1919  this  council  was  advisory  only  and  without  machinery  for 
constructive  work  in  the  establishment  of  rates.  In  September, 
1919,  a  reorganization  of  that  council  was  effected,  and  practically 
all  compensation  insurance  carriers  throughout  the  country  became 
affiliated  therewith.  A  complete  actuarial  and  statistical  organi- 
zation for  the  collection  and  study  of  statistics  was  employed  and 
nonpartisan  committees  were  elected  to  carry  on  the  work  of  finally 
developing  rates  for  all  states.  That  work  is  now  going  forward 
and  it  is  expected  that  a  complete  revision  of  California  rates  will 
be  undertaken  shortly.  In  this  work  the  combined  experience  of 
all  states  will  probably  be  employed  for  those  classifications  where 
the  local  experience  is  not  sufficiently  extensive  to  be  indicative  of 
future  costs,  but  modification  factors  will  be  used  to  meet  the  pro- 
visions of  the  California  law  and  local  conditions. 

It  should  be  remembered  that  any  schedule  of  rates  and  classifi- 
cations proposed  for  California  will  be  subject  to  the  final  approval 
of  the  Insurance  Commissioner  before  becoming  legally  effective. 
With  a  nonpartisan  body  in  control  of  basic  rate  promulgation  and 


p,geTwo  FUND    FACTS 


the  requirement  for  the  California  Commissioner's  approval,  after 
consideration  in  the  light  of  local  experience  and  conditions,  there 
is  no  likelihood  of  exorbitant  rates  being  established. 

The  California  law  requires  that  any  rate  schedule  approved  for 
California  shall  be  uniform  for  all  carriers  and  the  rates  must, 
therefore,  carry  sufficient  expense  loading  to  meet  the  expense 
requirements  of  corporate  insurance.  The  overhead  expense  of  the 
State  Compensation  Insurance  Fund  is  less  than  one-third  the 
expense  of  corporate  companies,  and  this  saving,  as  well  as  under- 
writing profit  and  investment  earnings,  is  returned  to  Fund  policy- 
holders through  dividends. 

In  several  eastern  states  it  has  been  found  that  the  increase  in 
the  average  wage  of  industrial  workers  (premiums  for  insurance 
being  computed  upon  workers'  earnings)  has  resulted  in  an  unusual 
profit  for  the  carriers,  especially  during  the  past  two  years.  This 
for  the  reason  that  compensation  benefits  have  not  increased  in 
proportion  in  those  states.  There  is  grave  doubt  as  to  whether 
this  applies  to  California  because,  while  wages  have  increased,  an 
additional  liability  has  been  imposed  through  the  reduction  in 
the  waiting  period,  the  requirement  for  contribution  to  the  Reha- 
bilitation Fund  in  death  cases  with  no  dependency,  the  added  cost 
for  industrial  disease,  etc.  This  additional  loss  cost  has  been 
absorbed  without  any  increase  in  the  legal  rates,  the  manual  of 
rates  now  in  effect  having  been  adopted  prior  to  this  increase  in 
liability  under  the  law. 

At  this  point  the  reader  should  be  reminded  that  the  companies 
holding  membership  in  the  National  Workmen's  Compensation 
Service  Bureau  arbitrarily  increased  their  charges  on  January  1, 
1918,  by  an  average  of  five  per  cent  over  the  legally  approved  rates 
(to  meet  "war  costs,"  so-called)  after  failing  to  secure  approval  of 
a  general  rate  increase.  The  companies  continued  these  increased 
rates  in  effect  during  all  of  1918  and  the  greater  part  of  1919, 
while  the  Fund  continued  to  charge  only  the  legally  approved 
rates. 

At  present,  statistical  study  has  not  progressed  to  a  point  where 
it  can  be  said  that  the  revised  California  rates  will  represent  an 
average  increase  or  an  average  decrease,  but  it  is  known  that  there 
are  some  inequities  in  the  present  schedule  which  are  subject  to 
correction.  It  is  entirely  safe  to  assume,  however,  that  the  rates 
finally  developed  will  represent  the  best  actuarial  and  statistical 
effort  which  can  be  put  forth. 

The  California  Inspection  Rating  Bureau  is  an  organization 
composed  of  all  classes  of  insurance  carriers  operating  in  California. 
That  bureau  interprets  the  manual  rules  and  proposes  changes  for 
the  approval  of  the   Insurance  Commissioner  from  time  to  time. 


FUND     FACTS  Page  Three 


It  also  inspects  risks  subject  to  merit  (or  schedule)  rating  and 
publishes  the  net  rate  applicable  for  the  uniform  use  of  all  carriers. 
A  card  notice  showing  this  net  rate  for  each  merit  ratable  risk  is 
sent  to  all  carriers  simultaneously  and  the  notice  indicates  the 
date  upon  which  the  net  rate  becomes  efiEective.  This  bureau  also 
checks  copies  of  all  policies  issued  by  the  carriers  and  is  charged 
with  the  responsibility  of  seeing  that  the  legal  rates  are  applied  in 
each  instance. 


The  business  of  the  State  Compensation  Insurance  Fund 
increased  by  more  than  a  million  dollars  in  1918  and,  again, 
by  over  three-quarters  of  a  million  dollars  in  1919. 


WHAT  IS  STATE  INSURANCE  IN  CALIFORNIA? 

THE  SIMILE  for  a  "Boomerang"  is  the 
"Chicken    that    Comes   Home    to   Roost." 

IT  has  been  said  that  patronage  which  tends  to  make  state 
insurance  successful  may  be  the  "boomerang"  to  drive  the 
employer  out  of  his  own  business  through  encouraging  state 
competition  in  business  generally.  The  presentation  of  that  argu- 
ment sends  forth  the  "chicken"  on  his  "boomerang"  flight.  At  first 
glance  his  plumage  dazzles.  When  viewed  more  closely  in  associ- 
ation with  his  ORIGINAL  SOURCE  he  is  a  drab  bird— minus 
tail  feathers,  spurs  and  all  other  regalia.  If  we  look  for  the 
MOTIVE  behind  the  argument  we  find  it  is  SELF-INTEREST 
and  not  the  employer's  interest  which  prompts  it. 

Let  us  go  to  the  bottom  and  see  just  what  interest  the  state 
actually  has  in  this  business  of  insurance: 

We  find  that  the  Legislature  appropriated  $100,000.  to  start 
the  Fund;  it  provided  that  the  Fund  should  be  "fairly  competi- 
tive," that  it  should  be  "self-sustaining,"  and  that  the  state  should 
not  be  liable  beyond  the  amount  of  the  fund  appropriated.  In 
short,  the  state  simply  took  the  initiative  in  organizing  and  pre- 
senting to  California  employers  a  medium  through  which  they 
might  cooperate  in  distributing  their  compensation  losses  on 
a  mutual  basis  and  under  a  scientific  reserve  system  instead  of  an 
assessment  plan.  The  very  foundation  of  insurance  rests  upon  the 
principle  of  "mutuality."  There  can  be  no  scientific  distribution 
of  the  world's  adversity  without  a  wide  distribution  of  premium 
payment  and  risk  exposure  to  equitably  apportion  the  cost  to  each 


Page  Four  F  U  N?D     F  A  C  T  S 


one  insured.  If  the  true  mutual  principle  is  followed  out  there 
should  be  no  more  contributed  than  the  actual  amount  neces- 
sary to  meet  the  losses  and  expenses.  Corporate  insurance 
entered  the  field  with  the  sole  idea  of  collecting  and  retaining 
more  than  necessary  to  pay  the  losses  and  expenses  in  order 
to  derive  a  proHt  from  the  undertaking.  This  may  be  a  legiti- 
mate field  of  corporate  enterprise,  but  for  corporate  insurance  to 
take  the  "holier  than  thou"  position  and  point  to  mutual  insurance 
sponsored  by  the  state  as  "radical,"  "socialistic,"  etc.,  is  just  about 
as  consistent  as  to  say  that  employers  or  others  should  not  be  per- 
mitted to  affiliate  with  any  association  for  their  common  protection 
and  good,  but  should  leave  such  interests  to  a  third  party  for  his 
pecuniary  gain.  It  would  also  seem  as  consistent  to  say  that  the 
state,  as  an  association  of  citizens,  should  be  enjoined  from  build- 
ing highways  for  common  use  and  economy  in  private  and  com- 
mercial transportation. 

As  a  matter  of  cold  fact,  the  State  of  California,  as  such,  is  not 
actually  engaged  in  the  insurance  business,  because  it  does  not  pay 
the  expenses  of  conducting  the  business  and  derives  no  profit  what- 
ever from  the  transactions  of  the  Fund.  The  assets  of  the  Fund, 
beyond  the  reserves  for  paying  losses  incurred,  are  the  property  of 
the  policyholders.  The  original  appropriation  is  still  intact  and 
the  Fund  is  paying  interest  to  the  state  thereon. 

The  State  Compensation  Insurance  Fund  exists  solely  as  a 
mutual  insurance  institution  for  cooperative  protection  of  Cali- 
fornia employers  and  employees,  without  liability  on  the  part  of 
employers  beyond  the  premiums  paid.  These  premiums  carry  the 
necessary  loading  for  emergencies  and  the  excess  over  the  actual 
amount  required  is  returned  in  dividends  to  policyholders.  The 
Fund  is,  therefore,  nothing  more  nor  less  than  a  mutual  association 
with  which  California  employers  may  or  may  not  affiliate  at  their 
pleasure.     Can  you  see  anything  "radical"  in  that? 


INCREASE  IN  INITIAL  DIVIDEND 

THE   initial  dividend  on  policies  issued  by  the  Fund   in  the 
year  1919  has  been  increased  to  seventeen  and  one-half  per 
cent.      This   dividend,   which    is   a   flat   percentage,   is   being 
paid  to  each  policyholder  as  the  policy  expires  and  actual  earned 
premium  is  ascertained. 

Heretofore  the  initial  dividend  to  Fund  policyholders  has  been 
based   upon   an  average   return   of   fifteen   per  cent  and  has  been 


FUND     FACTS  Page  Five 


apportioned  in  accordance  with  the  loss  ratio  of  each  individual 
risk,  with  a  maximum  of  seventeen  and  one-half  per  cent  and  a 
minimum  of  ten  per  cent. 

Experience  under  this  plan  has  demonstrated  that  inequities  have 
occasionally  resulted.  It  is  impossible  to  determine  the  actual  loss 
ratio  of  each  risk  at  the  end  of  a  year  or  at  policy  expiration, 
because  many  of  the  open  claim  cases  have  not  then  progressed  to 
a  point  where  the  actual  incurred  loss  can  be  definitely  determined. 
As  the  initial  dividend  really  represents  a  saving  in  overhead  alone, 
it  has  been  decided  that  in  future  the  initial  dividend  will  be  appor- 
tioned as  a  uniform  percentage  of  the  premium  for  each  risk. 

Final  dividends,  payable  when  the  difference  between  the  legal 
loss  reserves  and  the  actual  losses  is  released  to  surplus,  represent 
underwriting  profit  and  the  final  dividends  are  to  be  apportioned 
in  accordance  with  the  experience  under  each  policy. 

(Average  savings  effected  for  policyholders  through  dividends 
paid  by  the  Fund— OVER  THIRTY  PER  CENT— maximum 
38.5  per  cent,  minimum  10  per  cent.) 

Dividends  are  not  paid  under — 

Policies  earning  only  the  "minimum  premium." 

Policies  where  the  Insured  has  allowed  premium   due  the 
Fund  to  remain  flagrantly  delinquent. 

Policies    where     premium     collection     has     been    enforced 
through  legal  proceedings. 


CHARACTER 

THE  English  servant  girl  seeking  a  "situation"  is  in  a  bad 
way  indeed  if  she  can  not  carry  a  letter  of  recommendation, 
which  she  terms  a  "character,"  from  her  previous  employer. 
It  has  always  been  the  practice,  in  solicitation  of  business  for 
the  Fund,  to  refer  prospective  insurance  buyers  to  "any  employer 
having  had  experience  with  the  Fund."  Commendatory  letters 
have  never  been  sought,  but  it  is  a  source  of  gratification  that  the 
files  contain  many  hundreds  of  such  letters,  sent  voluntarily  by 
policyholders.  Such  a  letter  was  received  from  one  of  California's 
largest  employers  while  "copy"  for  this  issue  was  being  prepared 
and  we  take  the  liberty  of  reproducing  it  below.  The  name  of 
the  insured  corporation  will  be  furnished  any  one  interested  upon 
request. 


PageSix  FUND    FACTS 


Dear  Mr.  Fellows: 

It  has  occurred  to  me  that  perhaps  you  would  be  interested 
in  knowing  that  from  time  to  time  we  are  asked  to  give  other 
companies  our  opinion  as  to  the  service  and  benefit  to  be 
derived  from  insurance  with  the  State  Compensation  Fund; 
we  were  asked  to  give  such  recommendation  just  a  day  or  so 
ago,  and  I  am  enclosing  herewith  copy  of  our  reply,  as  well 
as  a  reply  to  a  previous  request,  which  comes  to  my  mind  just 
at  the  moment. 

It  always  gives  us  pleasure  to  be  able  to  give  these  recom- 
mendations, as  we  feel  that  your  service  gives  us  ample  justi- 
fication to  do  so. 

Extracts  From  Letter  to  Inquirer: 

"Our  dealings  with  the  said  Fund  to  date  have  been  of  the  very 
best." 

"We  have  found  that  the  injured  man  has  always  been  given 
the  benefit  of  any  doubt." 

"Service  has  been  very  prompt  and  free  from  the  lengthy  cor- 
respondence prevalent  in  previous  insurance." 

"Our  refund  on  premiums  has  been  as  high  as  37  per  cent." 


MR.  EMPLOYER: 


The  agent  or  broker  takes  twice  as  much  of  your  valuable  time 
in  taking  your  application  for  an  insurance  company  as  you  would 
spend  in  submitting  application  direct  to  the  Fund.  You  are  also 
charged  with  the  time  of  the  agent  or  broker  through  expense 
loading  in  \'our  rate.  You  can  "win"  two  ways  by  placing  your 
application  direct  with  the  Fund — save  your  own  time  and  save 
the  unnecessary  overhead  represented  by  commission  to  agent  or 
broker. 


HOME  INDUSTRY 

THE   Home   Industry  League  of   California,  we  understand, 
is  engaged  in  the  business  of  promoting  California  industry 
and   is  encouraging  the  use   and   consumption   of   California 
products.      From   the  viewpoint  of  all   true  citizens,   that  should 
be  a  worthy  pursuit.     In  this  same  connection,  what  becomes  of 
the    premiums    paid    for    compensation    insurance    by    California 


FUND     FACTS  P.geSeven 


employers?  In  the  report  of  the  Insurance  Commissioner  for  the 
year  1918  we  find  that  thirty -three  insurance  carriers  were  com- 
peting for  compensation  business  and  that  only  three  were  Cali- 
fornia institutions,  including  the  State  Fund.  The  total  premiums 
amounted  to  $8,569,904.93,  of  which  $5,772,157.95  was  sent  away 
from  California — $2,875,041.72  going  to  corporations  of  foreign 
countries  (this  does  not  include  American  companies  owned  by 
foreign  capital).  Of  the  amount  retained  in  California,  the  Fund 
wrote  $2,459,086.08,  and  its  entire  assets  available  are  now  invested 
solely  in  California  municipal  bonds  and  United  States  liberty 
bonds. 

The  investments  of  the  State  Compensation  Insurance  Fund 
since  its  organization  in  1914  to  February  2,  1920,  have  aggre- 
gated $3,854,962.50. 

The  Fund  contributed  to  the  "win  the  war"  program  by  invest- 
ing $1,330,000  in  the  five  United  States  liberty  loans  and  to  the 
general  upbuilding  of  the  state  by  the  investment  of  $2,524,962.50 
in  securities  of  the  State  of  California  and  political  subdi- 
visions thereof. 

An  analysis  of  the  investments  shows  the  ownership  of  all  or 
part  of  eighty  different  California  issues,  state,  county,  city,  school 
district  and  irrigation.  Investments  have  been  made  in  three 
issues  of  state  bonds,  twenty-seven  municipal  issues  (city  or 
county),  forty-nine  school  district  issues  and  one  irrigation  issue. 

The  moneys  of  the  Fund  have  been  invested  in  securities  issued 
by  twenty-four  of  the  fifty-eight  counties  and  bids  have  been  placed 
for  securities  issued  in  practically  every  county  in  California. 

If  California  employers  need  any  incentive  other  than  insurance 
at  net  cost  to  prompt  them  in  patronizing  "home  industry"  we 
respectfully  offer  the  above  figures  for  what  they  may  be  worth. 


A  letter  or  postal  card  giving  name,  address  and  nature  of  busi- 
ness will  bring  5'ou  full  particulars — also  a  binder  if  desired.  A 
telegram  will  do  the  same  if  your  requirements  are  urgent. 


Every  Fund  policyholder  has  a  direct  interest  in  increasing  the 
business  of  the  Fund — for  increased  business  means  decreased  over- 
head and  greater  dividends.  Tell  j-our  friends  of  your  savings 
through  Fund  insurance. 


P.geE.8ht  FUND    FACTS 


NEW  QUARTERS  IN  LOS  ANGELES 

The  growth  of  the  business  of  the  Fund  in  southern  California 
has  necessitated  additions  to  the  staff  and  larger  quarters  for  the 
Los  Angeles  organization,  headed  by  Mr.  H.  B.  Humphry,  Branch 
Manager.  A  large  suite  of  offices  has  been  leased  on  the  fourth 
floor  of  the  California  Building,  Second  and  Broadway,  and  the 
new  quarters  were  opened  for  business  on  February  1,  1920. 

Employers  in  that  district  are  cordially  invited  to  call  or  write 
to  the  Los  Angeles  office  for  any  information  desired  concerning 
compensation  insurance,  whether  or  not  insurance  is  carried  with 
the  Fund.  Most  careful  and  courteous  attention  will  be  given 
to  all  inquiries. 


Insurance  with  the  Fund  provides  the  best  protection 
obtainable  and  at  lowest  cost.  If  contrary  statements  are 
made  by  persons  seeking  your  patronage,  or  others,  please 
insist  that  such  statements  be  reduced  to  writing;  then  give 
us  an  opportunity  to  reply  and  we  will  give  you  FACTS 
ONLY. 


UC  SOUTHERN  REGIONR  L'^f^"^  [ ^"jjjjj.n 

A    001  320  394    8 


IT  IS  A  PLEASURE  TO   REPRODUCE  THE 

FOLLOWING  BY  REQUEST  OF  THE  UNITED 

STATES  TREASURY  DEPARTMENT 


The  United  States  government  has  adopted,  as  a 
permanent  policy,  active  propagation  of  the  national 
Thrift  and  Savings  movement  inaugurated  during 
the  war.  No  single  heritage  of  our  victory  is  fraught 
with  such  promise  of  lasting  good  to  America  as  is 
this  movement  under  direction  of  the  Treasury 
Department,  and  it  gives  us  pleasure  to  cooperate 
with  our  government  in  advocating  Thrift  and  con- 
tinued investment  in  government  securities. 

SAVINGS  and  INSURANCE  are  both  protective 
measures  which  every  man  and  woman  should 
employ  as  opportunity  affords.  Will  you  therefore 
help  stimulate  in  your  community  and  among  policy 
holders  these  Thrift  principles? 

Increase  production  as  a  basis  for  larger  individual 
earnings. 

Save  systematically  a  part  of  all  income  received 
at  the  time  it  is  received. 

Spend  wisely  and  avoid  extravagance. 

Invest  savings  promptly. 

Hold  government  securities  now  owned,  as  a  mat- 
ter of  good  citizenship  as  well  as  personal  advan- 
tage. 

Increase  holdings  of  government  securities,  because 
a  dollar  thus  invested  releases  a  dollar  for  business 
expansion,  which  means  general  prosperity. 

The  government  provides  a  ready  way  to  save 
through  the  25-cent  Thrift  Stamp,  the  $5  War  Sav- 
ings Stamp,  the  $100  and  $1000  Treasury  Savings 
Certificates  and  the  Liberty  Bond.  These  securities 
are  on  sale  continually  at  all  banks. 

Thrift  and  V/ar  Savings  Stamps  and  $100  Treasury 
Savings  Certificates  can  also  be  obtained  at  post 
offices. 

War  Savings  Stamps  and  Treasury  Savings  Certifi- 
cates pay  4  per  cent  interest,  compounded  quarterly. 

We  will  be  glad  to  have  you  cooperate  in  every 
way  to  develop  the  habit  of  regular  saving  and  safe 
investment  as  a  great  national  force  making  for  busi- 
ness stability  and  progress,  as  well  as  a  practice  of 
direct  benefit  to  the  man  who  saves.  We  urge  you 
to  give  the  widest  publicity  to  these  facts. 


